Throughout the world, banks and the financial sector more generally have become widely criticized. They didn’t do what they were supposed to do, and they did what they weren’t supposed to. I have likened the financial sector to the brain of the economy: it is central to the management of risk and the allocation of capital. It runs the economy’s payment mechanism. It intermediates between savers and investors, providing capital to new and growing businesses. When it does its functions well, economies prosper; when it does its jobs poorly, economies and societies suffer. Unfortunately, there is a growing sentiment that in recent years, banks in many countries—including the US and Europe—didn’t do their job well. The resulting losses are enormous—in terms GDP alone, in the trillions of dollars.

Regulators have been blamed, but mainly for not doing their job, of preventing these abuses. For this, there is no excuse: There have been periods (notably in the decades beginning in the mid-30s) in which regulation worked. But then interests and ideology combined to push an agenda of deregulation and liberalization. Even before that ideology had become fashionable in the 1980s, economic science had explained why markets in general and financial markets in particular were, on their own, neither efficient not stable, a perspective reinforced by a wealth of historical experience.